Economic damage of Gulf oil spill likely long term

Life’s A Beach Rentals employee Matt Avant, left, listens as Thomas Amacker, a long-time employee, explains how the much publicized threat of oil soaking the white beaches along the Mississippi Gulf Coast has affected the rental business, although no traces of oil appear on the beach.

Rogelio V. Solis / AP

MIAMI — As oil seeps into Louisiana marshlands, economists say the financial fallout is only just beginning to spread across the Gulf of Mexico and possibly beyond.

Even if BP teams succeed in capping the undersea gusher, the economic damage could drag on for years depending on how much oil actually lands ashore and how extensive the damage is to Gulf fisheries.

"I think things are really bad," said Nathaniel Karp, chief U.S. economist for BBVA Compass, a Birmingham, Ala., bank. "It could get even worse."

Calculating the degree of economic damage remains a guessing game, as scientists question how much oil will actually touch ground and how far the spill will stretch.

But there's consensus the stakes are huge, with the seafood industry facing the biggest threat but tourism capable of delivering the most severe economic blow.

In the weeks after the spill as fears of contaminated water spread throughout the Gulf, dive operations as far away as Key West reported cancellations.

Hotels in coastal cities report scattered cancellations and a severe drop in bookings.

"We're not getting the phone calls," said Tim Kerigan, tourism director for Florida's Gulf County. Summer home rentals are off a staggering 80 percent since the April 20 explosion on a BP oil well on the Gulf floor, he said.

Moody's, a major credit-rating agency, recently warned of strains on tax revenues for local governments across the Gulf if property values take a dive because of oil contamination. The report even warned that — in a nightmare scenario of currents taking large amounts of oil to the Sunshine State — the spill could slam Florida harder than the recession.

A May 5 report Karp helped write for BBVA predicted the spill would deliver a $4.3 billion economic hit, mostly from losses in tourism and fisheries. "In the long-run, environmental damages have the potential to wreck local economies," the report noted.

Karp said he would probably increase that number if he were writing the report today. "I'm more worried now," he said. "Even if we start seeing some positive results now in terms of the leak, you still have all that oil."

In Louisiana, so far the only known coastal victim of the gusher's oil, tourists and seafood wholesalers spend about $1.5 billion a year, according to government figures. Mississippi and Alabama rely on tourism and seafood for at least $5 billion.

Even with the hope Thursday that spewing oil would be stopped by a risky BP effort to plug it with debris and mud, Gulf businesses fear their troubles have just started.

"We're not at the beginning of the end," said Kevin Voisin, vice president of new business development and Motivatit Seafood in Houma, La., an oyster plant that shut down Wednesday because it had no oysters to shuck. "This is the beginning of the beginning."

Seafood restaurants across the country could have prices rise and demand fall if plants like Motivatit continue struggling for supplies or regulators declare Gulf seafood a health hazard. But as the oil crisis stretches into its second month, some are beginning to conjure even more far-reaching problems for the Gulf economy.

And the oil industry itself, worth about $70 billion to the Louisiana economy, could end up a financial casualty if the spill prompts a regulatory crackdown. On Thursday, President Barack Obama halted exploratory drilling for undersea Gulf wells while Washington reviews safety rules for the operations.

"We have a number of people who actually work on rigs or on platforms," said Loren Scott, an LSU economics professor emeritus who now runs a consulting firm in Baton Rouge.